Former Fed Examiner: Bitcoin is a pump and dump scheme, to collapse to $10

Will bitcoin reach $100,000 in the future, as one technology professional predicts, or will it decline substantially to just a few bucks, as a former central banking official foresees this year? Time will tell.

A lot of bitcoiners, merchants and tech experts have high hopes for the cryptocurrency this year. At the beginning of 2013, bitcoin started off trading at around $13 and ended the year at approximately the $850 mark. By the middle of this year, though, one former Federal Reserve official sees bitcoin dropping all the way back down to $10.

Mark Williams, a Boston University finance professor and former bank examiner for the Federal Reserve, offered up some details on the digital currency, which has been gaining serious momentum all over the world. According to a report from Forbes, bitcoin’s value is due to a select few pumping it up: 47 people own 29 percent of all outstanding bitcoins, 930 own 50 percent and thousands own the rest.

Williams states that the 47 powers collaborated to push up the prices to where they are today. They were able to accomplish this because they predicted the moves by “Greater Fools,” a term generated by economists as part of the Greater Fool Theory, someone is always willing to pay a higher price.

He asserted that the initial miners turned into speculators. Now the miners of bitcoin who became interested in the alternative currency because of technology and opposition to central banking are now hoarding – it is estimated 90 percent of bitcoins are held.

“If you hype demand the small incremental amount that is available for sale set the price,” said Williams. “That’s not an efficient market, that’s an inflated market, a market that is misled with false information. I think the market mechanism right now is being interfered with.”

When will bitcoins fall to $10? Williams forecasts that the smaller bitcoiners will drop out and cease acquiring the cryptocurrency as the current astronomical prices, which is “when the house of cards will start falling price wise.”

In the future, bitcoin will just become synonymous with digital currency akin to Kleenex is to tissues. Others, meanwhile, will learn from the failures of bitcoin and perhaps establish a better system that will have less volatility and heightened acceptance.

“There is a very low, to no, barrier to entry,” explained Williams. “[It] provided open source. It’s a decentralized system, and because it’s open it’s free. They have actually given the technology away.”

At the time of this writing, bitcoin is currently trading at just under $850.

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